The board's duty to act when equity is impaired: what to do in the first ten days is to treat the signal as a fixed obligation, not a bookkeeping note. Once there is reason to believe equity has fallen critically, every board member is personally exposed to the company's debts until a control balance sheet is prepared and acted on.
Who this concerns
This duty falls on every member of the board of a Swedish aktiebolag, regardless of how the seat was obtained: by formal appointment, by acting as a de facto director without one, or by sitting on the board of a wholly owned subsidiary as a nominee for a foreign parent. It attaches personally and individually. It is not discharged by a majority vote to wait, and it is not softened by a shareholder's informal assurance that more funding is coming.
The trigger is financial, not procedural. It is not tied to a missed filing or a court notice. It arises the moment the board has reason to believe the company's equity is critically impaired, which is often visible in management accounts weeks before the annual report is finalised. The director liability practice treats this as one of the clearest triggers for personal exposure precisely because the window is short and the failure pattern is almost always self-inflicted delay, not bad luck.
What the law says
Under Swedish law as it currently stands, a board that has reason to believe its equity is critically impaired must prepare what is known in Swedish as a kontrollbalansräkning, a control balance sheet drawn up specifically to test whether the company's equity is still intact. It is not the ordinary annual accounts. It is produced on a different valuation basis, at a specific moment, to answer one narrow question: is committed equity still covering committed capital, or not.
If the control balance sheet shows the position remains critically impaired, the board must put the matter to a general meeting of shareholders. If the position is not corrected within the period the law allows, the company can be forced into compulsory liquidation, and in the meantime the directors who failed to act can become personally and jointly liable, together with the company, for obligations it takes on. This is one of the few points in Swedish company law where personal exposure attaches on the facts, without a liquidator first having to prove fraud or bad faith.
How it works in practice
In practice, the ten days that matter most are the ten days after the board first has reason to suspect the trigger, not the ten days after an auditor confirms it.
Day one: naming the trigger
The first task is procedural discipline, not accounting. Someone on the board has to record, on a specific date, that there is reason to believe equity is critically impaired. That date becomes the reference point for everything that follows, including how a court will later assess whether the board acted without undue delay.
Days two to four: freezing new exposure
Before the control balance sheet is finished, the practical job is to stop making the position worse. That means holding off on new unsecured credit, new supplier commitments the company may not be able to honour, and any transaction that primarily benefits one creditor over the others. It does not mean stopping trading altogether; premature closure carries its own risks and is rarely what the law requires at this stage.
Building the control balance sheet
The control balance sheet values assets on a basis different from the ordinary accounts, because the question being tested is not going-concern profitability but whether recognised equity still covers registered capital. A shareholder loan sitting as a liability, an informal comfort letter, or an unsecured promise of future funding is not capital for this purpose unless it has been converted into something the balance sheet actually recognises.
Getting it reviewed before the meeting
An auditor's review of the control balance sheet strengthens the board's position if a dispute arises later, but the duty to prepare the document and call a meeting does not wait for the auditor's calendar. Boards that treat the review as a reason to delay the meeting are converting a strengthening step into a blocking one.
Calling the general meeting
The general meeting has one job at this stage: to be told the position and to decide whether it can be corrected. A meeting held to discuss other business, with the equity position mentioned in passing, does not satisfy the duty. The notice, the agenda, and the minutes need to show the trigger was the reason for the meeting.
If the position is not corrected
If equity remains critically impaired after the meeting, the path narrows to a formal application, usually to the court, to have the company placed into compulsory liquidation. Directors who continue trading past this point, without having triggered that process, are the ones most exposed personally for what the company owes afterwards.
Foreign parent companies and directors abroad
Nothing about this duty changes because the board sits on a Swedish subsidiary of a foreign group, or because some directors are resident abroad and attend meetings only by video. The obligation runs to each individual on the board of the Swedish company, not to the group as a whole. A common failure pattern is a foreign parent instructing the Swedish board to wait for a group-level funding decision. The instruction does not suspend the Swedish board's own duty, and a director who follows it without also raising the position formally is not shielded by having acted on a parent company's request.
What to check right now
- The date on which the board first had, or should reasonably have had, reason to suspect the trigger.
- Whether minutes exist recording that date and what was decided at the time.
- Whether any shareholder loan or funding promise has actually been converted into recognised capital.
- Whether new unsecured commitments have been entered into since the trigger date.
- Whether the notice for any meeting called on this issue names the equity position as its reason.
- Whether any board member raised the issue in writing and was overruled, and whether that dissent is recorded.
What happens if the board takes no action after equity is impaired?
Inaction does not pause the clock; it runs against the board. If the company incurs debts after the point at which the board should have acted, and the required steps were never taken, the directors who sat through that period can be held personally liable for those debts, alongside the company. The exposure is tied to the period of inaction, not to the company's finances as a whole.
Does resigning from the board remove personal liability once the trigger has occurred?
Resignation stops future exposure from the date it is registered; it does not undo liability that has already attached for the period before the resignation. A director who resigns after the trigger has passed and the required steps were skipped is still exposed for that earlier window, and a resignation timed to look like an exit is often read that way later.
How does the duty change when the company has a de facto director or a foreign parent?
It does not change in substance; it changes who else is exposed. A person acting as a de facto director without a formal appointment can be treated as if the duty applied to them directly, if they were in practice running the company. A foreign parent does not inherit the Swedish board's duty by giving instructions, but a representative who effectively directs the Swedish company can be drawn into the same exposure as a de facto director.
The numbers
There is no single number in this area that applies to every company, and any material that quotes a fixed day count as universal is oversimplifying. What actually varies from company to company is the level of registered share capital, which fixes the threshold the control balance sheet is testing against; the notice period for calling a general meeting, set within limits the law allows by the company's own articles of association; and the standard the board is held to, which is framed as acting without undue delay rather than as a specific number of days.
The "first ten" in this material is an operating framework for how a board should sequence its response, not a figure lifted from the statute. Confirming the actual thresholds and periods that apply to a specific company, given its share capital and its articles, is a document check, not a general statement, and it is the first thing worth getting right before any meeting is called.
Cost in this area is not fixed and should not be quoted as if it were. What moves it is how far the position had already deteriorated before the board acted, how many transactions since the trigger date need to be reviewed for exposure, and whether a control balance sheet needs to be reconstructed retrospectively because none was prepared at the time.
Where it usually goes wrong
The most common failure is not ignorance of the duty; it is misreading what discharges it. A shareholder loan sitting on the balance sheet as a liability does not fix critically impaired equity, however firm the shareholder's intention to eventually convert it. Only a transaction that actually increases recognised equity, such as a genuine conversion to capital or a completed share issue, moves the test.
A second failure is treating the auditor's sign-off as the starting point. The duty starts when the board has reason to suspect the trigger, often weeks before any external confirmation. Waiting for the audit to finish before acting is one of the most common patterns in disputes that later go against the board.
A third is assuming a group instruction from a foreign parent overrides the Swedish board's own duty. It does not. The Swedish board remains the body the law looks to, and a director who can show only that they were following instructions from abroad, without also having raised the position formally, is in a weaker position than one who documented an objection.
Where this stops applying in the way described above is where the equity position was corrected before anyone had reason to suspect the trigger, or where the board can show the figures used to raise the concern were themselves wrong. Both are factual questions, not legal ones, and both depend on documents that exist or do not exist at the time, not on documents created afterwards to explain a decision.
What to do next
The steps above cover what a board can and should do without outside help: naming the trigger, freezing new exposure, and getting a control balance sheet onto paper. Self-directed work runs out at the point where the figures themselves are in dispute, or where a board member wants to know their own personal exposure for a specific period before deciding whether to stay on the board or resign.
That is a different exercise from preparing the balance sheet. It is an assessment of the board's actual exposure given what happened and when, and it usually turns on the same document trail described in the checklist above. Lodline's assessing personal liability for company taxes material covers the related question of what a director owes personally once the company itself cannot pay, and is the natural next step once the control balance sheet stage is behind the company. For a board still inside the first ten days, the most useful next move is a direct assessment of the board's exposure before any more transactions are entered into.